IPOs and new issues

A company planning an IPO will set out its stall in its offering prospectus.

It will state where the company is domiciled, give a description of its operations, a summary of key trends affecting its business and the markets in which it operates, as well as who is selling the shares and historical accounting information.

The prospectus will also detail if the company has generated revenues or profits yet and assess the key risks it faces, which must be set out in full. Not all companies joining the stock market will be generating revenues. Companies in the small cap oil and gas and biotechnology sectors, for example, are often at the pre-revenue stage.

You will also find the price range the shares will be sold at (although this can change), how many shares will be offered, who is selling them and what proportion of the outstanding shares the main sellers will have once the company has joined the market.

As with any share purchase, you must take a view on whether the opportunity presented is a good one.

This is by no means a comprehensive IPO checklist but they are some of the questions you can ask before making a decision about whether to buy.

• Will the money raised by the IPO be used to support plans for growth or to pay down debt?
• Is there a strategy in place for medium and long-term growth which considers risk factors?
• Do analysts think the offer price represents good value?
• Do the management team have a good track record in stewarding business to sustainable growth?
• Are the business owners looking to stay in or exit the business?
• If the company has made acquisitions of other businesses, did they prove sound investments?
• Is it reasonable to expect that the company can maintain or grow its market share?

Ultimately, the decision is yours. If you believe that a company is one you will be happy to back and have reasonable expectations that it will succeed over the longer-term, you can stay invested long after flotation day.